Pre-Earnings Options Volume Picks Up on Bank of America, Goldman Sachs

Bank of America and Goldman Sachs will report earnings ahead of tomorrow's open

by Karee Venema |

Published on Apr 17, 2017 at 2:46 PM

First-quarter earnings season is officially underway. Last Thursday's results from Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Co (NYSE:WFC) provided a preview to this week's busy slate of bank earnings, with results from financial giants Bank of America Corp (NYSE:BAC) and Goldman Sachs Group Inc (NYSE:GS) due out tomorrow morning. With all eyes on financial stocks in the near future, here's a closer look at how options traders have been lining up on shares of both BAC and GS ahead of earnings.

Bank of America Stock Sees Heavy Pre-Earnings Options Volume

BAC has seen some of the heaviest option volume among stocks in the last 10 trading sessions, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Specifically, 1.4 million BAC calls have changed hands in the last two weeks, compared to 953,998 puts.

The stock's April 24 call saw the most action over this time frame, with more than 209,000 contracts traded, and the major options exchanges confirms a mix of buy- and sell-to-open activity. Those buying to open the calls expect BAC to break out above $24 by this Friday's close -- when the front-month options expire -- while those selling to open the calls are betting on the strike to serve as a near-term ceiling. These call writers could also be hoping for a post-earnings volatility crush, which may allow them to buy back the calls at a lower premium than the one they collected upon initiation.

Meanwhile, on the put side, BAC's April 22.50 and 23 strikes, as well as the weekly 4/28 22.50 strike, have seen the biggest rise in open interest over the last two weeks, with more than 60,000 contracts added at each. Trade-Alert indicates the two 22.50 strikes were used to initiate a long put calendar spread last Thursday.

Pre-Earnings Goldman Sachs Options Traders Buy Calls

Call buyers have set their sights on GS in the weeks leading up to tomorrow morning's quarterly results. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 28,322 calls on GS stock in the last 10 days, versus 17,351 puts, resulting in a top-heavy call/put volume ratio of 1.63.

Drilling down, the April 230, 240, and 250 strikes are home to peak call open interest, with a collective 18,605 contracts outstanding. Data from the major options exchanges indicates the bulk of the activity at each front-month call has been of the buy-to-open kind, meaning options traders are anticipating a positive earnings reaction for Goldman Sachs.

BAC Stock, GS Stock Struggle As Trump Rally Fizzles

Looking at the charts, both BAC and GS have pulled back since the post-election Trump rally sent the bank stocks to new highs. Bank of America Corp stock, for instance, has shed 12.5% since hitting an eight-year high of $25.80 on March 2 to trade at $22.57, but has found a foothold atop its 120-day moving average. Shares of Goldman Sachs Group Inc, meanwhile, are down 12% from their March 1 record high of $255.15. However, with GS last seen at $224.81, the stock has fallen below support in the $226-$229 region, home to a 23.6% Fibonacci retracement of its late-2016 rally, as well as its 120-day moving average.
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